India’s Fintech Industry Set for Rapid Evolution in 2023
Earlier this year, India’s Unified Payments Interface (UPI) was integrated with Singapore’s PayNow to enable users from both countries to access faster and more efficient cross-border remittances. The development is a testimony to India’s growth as a digital payments superpower and will help foster an ecosystem for financial inclusion while fuelling the growth of fintech and invest-tech startups in the country.
Catapulted by faster digital adoption, several niche and innovative fintech startups have mushroomed in the country to cater to customers looking to invest online.
In 2020, India breached the milestone of 100 million demat accounts, up nearly 40% from a year-ago period. Additionally, as per the data available from the Association of Mutual Funds in India (AMFI), retail investors hold more than 90% of all mutual fund accounts in the country. As per a recent report by EY, the wealth-tech segment is expected to have assets under management (AUM) of $237 billion out of the total $1 trillion in India’s fintech ecosystem by 2030.
India’s fintech industry is poised to experience unprecedented growth in 2023. This is due to several factors, including the emergence of specialized apps, the adoption of an omnichannel model, consolidation and rationalization of the industry, and the development of a new tech stack.
In this article, we’ll take a closer look at each of these trends and their impact on the Indian fintech ecosystem.
Super and specialized apps
In recent years, super apps that offer multiple services on the same platform have crowded the digital economy. In the context of fintech and financial services, super apps, often provided by leading banks, allow consumers to operate their accounts and manage finances including banking transactions, credit and lending, insurance, and investments in stocks and mutual funds.
As a new generation of offline users shift online and start using fintech super apps, early adopters are moving up the value chain, thereby creating strong demand for specialized apps and platforms. Catering to advanced, underserved, or differentiated consumers, niche platforms offer a sharper focus on investment needs and preferences including new products or investment avenues. Hence, while the super apps will continue to evolve, a niche segment of specialized apps for services such as investment management will continue to coexist and thrive.
The omnichannel model
While the pandemic has made digital platforms a part of our daily shopping and monetary transactions, a sizeable segment of consumers prefers taking financial advice from a qualified expert. Even most tech-savvy users who invest in special categories of asset classes which require a physical experience prefer visiting a bank branch or an investment firm.
A fintech platform must be available to address both simple and complex requirements of customers in different phases of their investing or transacting journeys while also solving for access and convenience. Hence, as new use cases and applications of digital services continue to evolve, fintech companies will have to offer a seamless omnichannel experience which will be vital to their growth.
Consolidation and rationalisation
The inconvenient truth about the Indian fintech ecosystem in India is that while many startups have disrupted the industry with innovative platforms and offerings, many are yet to figure out sustainable models to generate revenues. Riding on venture capital money, most companies primarily indulge in customer acquisition at a high upfront cost. And now, as the funding winter takes effect, investors are tightening their purse strings and beginning to ask pointed questions.
As often happens, such a situation will lead to a wave of consolidation where startups will get acquired or merged. And among fintech that survives, we can expect a round of rationalization in more ways than one — sustainable monetization versus customer acquisition, customer efficiency versus product feature, prioritizing spending, and right offerings versus product portfolio.
A new tech stack
The India Stack and Aadhaar-enabled UPI have opened access to technology for private players who can develop their services and business models on top of the public application programming interface (API). But more importantly, the plug-and-play model is open to any individual or startup and not necessarily only for those with capital to burn.
More recently, there has been a push for adopting an account aggregator, a framework that aims to restore the ownership and control of data back to the consumers. It seeks to achieve this by offering a secure consent-based data-sharing framework to finance institutions via regulated entities or account aggregators. The framework will go a long way in enabling access to better-designed fintech services for a broader segment of India’s underserved population.
In conclusion, the fintech industry in India is on the cusp of a major transformation, and the trends mentioned above are driving its growth. As the industry continues to evolve, fintech companies must adapt to changing consumer preferences and offer innovative solutions that cater to their evolving needs.
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